SUNNYVALE, Calif., Feb. 1 /PRNewswire-FirstCall/ -- Kyphon Inc. today announced that net sales for the quarter ending December 31, 2005 totaled $85.8 million, an increase of 37% over the $62.4 million in net sales reported for the fourth quarter of 2004. For the full-year 2005, Kyphon reported net sales of $306.1 million, which was an increase of 43% over the $213.4 million reported for the same period in 2004.
Earnings per diluted share for the quarter decreased 43% to $0.08 compared to $0.14 for the same period a year ago. Fourth quarter results include the previously announced $20.0 million special charge relating to the acquisition of an exclusive license to Dr. Harvinder Sandhu’s early invention rights concerning a directional bone tamp for treating vertebral compression fractures. Non-GAAP earnings per diluted share for the fourth quarter of 2005, which excludes the license acquisition charge, increased by 143% to $0.34 compared to GAAP earnings per diluted share of $0.14 in the fourth quarter of 2004. A reconciliation of GAAP and non-GAAP operating results is provided below.
Kyphon’s revenues for the fourth quarter included $69.1 million in net sales in the United States and $16.7 million in net sales from its international operations, representing growth in those markets of 32% and 63%, respectively, over the fourth quarter of 2004. For the full-year 2005, net sales in the United States were $257.6 million, an increase of 37% versus 2004 results. Net sales in countries outside the United States in 2005 were $48.5 million, reflecting growth of 87% versus the prior year.
Earnings per diluted share for full-year 2005 were $0.66, an increase of 32% over the $0.50 reported for the same period last year. Excluding the fourth quarter license acquisition charge, non-GAAP earnings per diluted share for 2005 grew 84% to $0.92 from GAAP earnings per diluted share of $0.50 in 2004.
“I am very pleased with our performance in the fourth quarter, which concluded an excellent year for Kyphon,” commented Richard Mott, president and chief executive officer of Kyphon. “Our strong revenue growth demonstrates continued strong clinician adoption of the kyphoplasty procedure. In addition, we improved our operating leverage performance in the quarter as operating income as a percent of revenues was a record high 26.7%, excluding the impact of the Dr. Sandhu license acquisition.”
“During 2005, we made important strides in positioning and building our franchise in minimally invasive spinal fracture treatment,” stated Mott. “We achieved significant milestones in the clinical, regulatory, patent and reimbursement environments, including completion of enrollment in the FREE (Fracture REduction Evaluation) Study, initiation of the Japanese registry study, successful enforcement of our patents, and further progression in obtaining governmental regulatory and reimbursement approvals in many overseas countries. In addition, the Centers for Medicare & Medicaid Services established specific national physician reimbursement codes for performing the kyphoplasty procedure.”
“We are pleased with our revenue growth and increasing profitability performance during the year, while continuing to invest in research, business development activities and clinical study initiatives designed to fuel our future growth and continued ability to serve our customers’ and their patients’ needs,” Mott concluded.
Financial Outlook for Full-Year 2006 and Quarter Ending March 31, 2006
For the full-year 2006, net sales are targeted to be between $383 million to $398 million. Revenue growth for the full-year 2006 versus 2005 is expected to be 25% to 30%. Net sales from the company’s international operations are targeted to constitute 17% to 19% of total worldwide net sales for the full-year 2006.
For the first quarter of 2006, the company anticipates worldwide net sales of $86 million to $89 million, which represents an increase of 30% to 34% versus the first quarter of 2005. Net sales from the company’s international operations are targeted to constitute 16% to 18% of total worldwide net sales in the first quarter.
The full-year 2006 target range for non-GAAP earnings per diluted share, before the impact of the implementation of stock-based compensation under FAS 123R, is expected to be between $1.16 and $1.26. Including the impact of FAS 123R, the target range for full-year GAAP 2006 earnings per diluted share is $0.79 to $0.89.
For the first quarter, non-GAAP earnings per diluted share, before the impact of FAS 123R, is targeted to be between $0.24 and $0.26. Including the impact of FAS 123R, the targeted range for first quarter GAAP earnings per diluted share is $0.16 to $0.18.
A reconciliation of GAAP to non-GAAP earnings per diluted share for the company’s financial outlook is as follows:
Three Months Ending Year Ending March 31, 2006 December 31, 2006 ---------------------------------------- Projected GAAP earnings per diluted share $0.16 - $0.18 $0.79 - $0.89 Add: Stock-based compensation expense, net of tax 0.08 0.37 ---------------------------------------- Projected non-GAAP earnings per diluted share $0.24 - $0.26 $1.16 - $1.26 ======================================== During 2006, the company intends to focus on the following priorities:
-- Intensify activities surrounding execution of our product development and business development agenda to accelerate the introduction of innovative new products,
-- Grow our industry leading spine sales force and further leverage the sales channel by selectively adding new products such as the recently acquired Functional Anesthetic Discography (FAD) product line,
-- Execute upon our clinical trial investments to further support the role of minimally invasive spinal fracture therapy including initiation of the first-ever prospective randomized kyphoplasty vs. vertebroplasty clinical trial,
-- Continue clinician training in the kyphoplasty procedure to increase the treatment availability for patients,
-- Drive further international market penetration through geographic expansion into selected countries in Europe, Asia and Latin America, and
-- Target investments into specific selling and marketing programs designed to raise awareness about the treatment option of kyphoplasty in the medical community.
Selected Metrics
Kyphon ended the fourth quarter of 2005 with 250 device sales representatives and 35 primary care sales professionals in the U.S. Internationally, the company ended the fourth quarter with approximately 80 sales professionals. Kyphon is planning to end 2006 with approximately 300 to 315 device sales representatives in the U.S., along with approximately 120 to 135 sales representatives outside of the U.S. These sales representatives work with spine specialists worldwide who perform, or who are candidates to perform, the kyphoplasty procedure and the primary care physician community, to educate them about the option of kyphoplasty. To date, approximately 5,000 spine specialists in the U.S. and 3,000 outside the U.S. have been trained to perform kyphoplasty. For the year 2006, Kyphon expects to train a total of approximately 1,800 physicians to perform kyphoplasty procedures, 900 in the U.S. and 900 outside of the U.S.
Use of Non-GAAP Financial Measures
Kyphon management believes that in order to properly understand Kyphon’s short-term and long-term financial trends, investors may wish to consider the impact of special charges. These charges result from facts and circumstances that vary in frequency and/or impact on continuing operations. In addition, Kyphon management uses results of operations before special charges to evaluate the operational performance of the company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.
Reconciliation of GAAP and Non-GAAP Operating Results
-- Non-GAAP fourth quarter 2005 and full-year 2005 results exclude the tax-effected charge of $20.0 million for the acquisition of an exclusive license to Dr. Harvinder Sandhu’s intellectual property rights. The acquisition charge was included in Kyphon’s research and development costs on a GAAP basis.
A reconciliation of Kyphon’s non-GAAP operating results for the fourth quarter of 2005 and full-year 2005 is as follows (unaudited, in thousands, except per share amounts):
Three Months Ended Year Ended December 31, December 31, ----------------------------------------------- 2005 2004 2005 2004 ----------------------------------------------- GAAP income from operations $2,882 $9,022 $44,137 $34,367 Adjustment to exclude license acquisition charge 20,000 -- 20,000 -- ------------------------------------------------- Non-GAAP income from operations $22,882 $9,022 $64,137 $34,367 ================================================== GAAP net income $3,725 $6,069 $29,836 $21,717 Adjustment to exclude license acquisition charge 20,000 -- 20,000 -- Adjustment to include tax effect of license acquisition charge (7,940) -- (7,940) -- ------------------------------------------------- Non-GAAP net income $15,785 $6,069 $41,896 $21,717 ================================================== Non-GAAP net income per share: Basic $0.36 $0.15 $0.98 $0.54 ================================================== Diluted $0.34 $0.14 $0.92 $0.5 ================================================== Weighted-average shares outstanding: Basic 43,637 41,147 42,803 40,449 ================================================== Diluted 46,130 43,938 45,336 43,670 ================================================== Earnings Call Information
Kyphon will host a conference call today at 2:00 p.m. Pacific Time to discuss its fourth quarter and full-year 2005 results and expectations for 2006. A live webcast of the call will be available from the Investor Relations section of the company’s corporate Web site at www.kyphon.com. The call will be archived on this site for a minimum of two months. An audio replay of the call will also be available beginning 6:00 p.m. Pacific Time on Wednesday, February 1, 2006, until 12:00 a.m. Pacific Time on Wednesday, February 22, 2006. To access the replay, dial 888-203-1112 (U.S.) or 719-457-0820 (International) and enter the access code 1784556.
About Kyphon Inc.
Kyphon develops and markets medical devices designed to restore spinal function using minimally invasive technologies. The company’s KyphX line of products are used in balloon kyphoplasty, a minimally invasive procedure to treat spinal fractures caused by osteoporosis or cancer. For more information, visit Kyphon’s Web site at http://www.kyphon.com .
NOTE: Kyphon and KyphX are registered trademarks of Kyphon Inc.
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements include, but are not limited to, those that use words such as “believes,” “expects,” “anticipates,” “targets,” “intends,” “plans,” “projects,” and words of similar effect, and specifically include the company’s future financial projections and anticipated business direction and performance. Forward-looking statements are based on management’s current preliminary expectations and are subject to risks, uncertainties and assumptions, which may cause the company’s actual results to differ materially from the statements contained herein. Information on potential risk factors that could affect Kyphon, its business and its financial results are detailed in the company’s periodic filings with the Securities and Exchange Commission (SEC), including, but not limited to, those risks and uncertainties listed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Future Operating Results,” which can be found in Kyphon’s quarterly report on Form 10-Q for the quarter ended September 30, 2005, filed with the SEC on November 2, 2005 and in Kyphon’s annual report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 2, 2005. Kyphon undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof.
KYPHE Kyphon Inc. Condensed Consolidated Balance Sheets (unaudited, in thousands) December 31, ------------------------- 2005 2004 ------------------------- Assets Current assets: Cash and cash equivalents $76,149 $87,236 Investments 118,324 24,421 Accounts receivable, net 55,480 42,347 Inventories 9,265 11,457 Prepaid expenses and other current assets 5,899 4,521 Deferred tax assets 10,488 13,537 ------------------------- Total current assets 275,605 183,519 Investments -- 4,142 Property and equipment, net 15,977 12,728 Goodwill and other intangible assets, net 15,377 5,039 Deferred tax assets 11,116 4,009 Other assets 2,924 3,952 ------------------------- Total assets $320,999 $213,389 ========================= Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $9,308 $5,544 Accrued liabilities 34,266 24,049 Other accrued liabilities 15,000 -- ------------------------- Total current liabilities 58,574 29,593 ------------------------- Deferred rent and other 4,051 4,161 Contingent purchase price 3,951 -- Deferred tax liabilities 4,367 -- ------------------------- Total liabilities 70,943 33,754 Commitments and contingencies Stockholders’ equity: Common stock, par value: $0.001 per share 44 41 Additional paid-in capital 231,312 189,410 Treasury stock, at cost (201) (201) Deferred stock-based compensation, net (116) (2,113) Accumulated other comprehensive income 172 3,489 Retained earnings (accumulated deficit) 18,845 (10,991) ------------------------- Total stockholders’ equity 250,056 179,635 ------------------------- Total liabilities and stockholders’ equity $320,999 $213,389 ========================= Kyphon Inc. Condensed Consolidated Income Statements (unaudited; in thousands, except per share amounts) Three Months Ended Year Ended December 31, December 31, ------------------------------------- 2005 2004 2005 2004 ------------------------------------- U.S. net sales $69,132 $52,212 $257,558 $187,526 International net sales 16,676 10,213 48,524 25,888 ------------------------------------- Net sales 85,808 62,425 306,082 213,414 Cost of goods sold 9,968 7,570 35,843 24,734 ------------------------------------- Gross profit 75,840 54,855 270,239 188,680 ------------------------------------- Operating expenses: Research and development 26,870 7,024 46,383 22,238 Sales and marketing 37,458 31,395 144,768 106,103 General and administrative 8,630 7,414 34,951 25,972 ------------------------------------- Total operating expenses 72,958 45,833 226,102 154,313 ------------------------------------- Income from operations 2,882 9,022 44,137 34,367 Interest income and other, net 1,423 447 3,979 1,250 ------------------------------------- Income before income taxes 4,305 9,469 48,116 35,617 Provision for income taxes 580 3,400 18,280 13,900 ------------------------------------- Net income $3,725 $6,069 $29,836 $21,717 ===================================== Net income per share: Basic $0.09 $0.15 $0.70 $0.54 ===================================== Diluted $0.08 $0.14 $0.66 $0.50 ===================================== Weighted-average shares outstanding: Basic 43,637 41,147 42,803 40,449 ===================================== Diluted 46,130 43,938 45,336 43,670 =====================================
Kyphon Inc.
CONTACT: Investors and Media, Julie D. Tracy, Vice President, InvestorRelations and Corporate Marketing of Kyphon Inc., +1-408-548-6500, orjtracy@kyphon.com
Web site: http://www.kyphon.com/
